Your Firm Is a U A)Go Short 12 Six-Month Forward Contracts; Pay $1,630,000

question 43

Multiple Choice

Your firm is a U.S.-based exporter of bicycles.You have sold an order to a French firm for €1,000,000 worth of bicycles.Payment from the French firm (in euro) is due in three months.Detail a strategy using futures contracts that will hedge your exchange rate risk.Have an estimate of how many contracts of what type and how much (in $) your firm will have. $\begin{array}{|c|c|c|r|r|}\hline \text { Country } & {\text { U.S.\$ equiv. }} && \text { Currency per U.S.\$ } \\\hline & \text { Tuesday } & \text { Monday } & \text { Tuesday } & \text { Monday } \\\hline \text { Britain(pound) } ? 62,500 & 1.6000 & 1.6100 & 0.625 & 0.6211 \\\hline \text { 1 Month Forward } & 1.6100 & 1.6300 & 0.3211 & 0.6173 \\\hline \text { 3 Months Forward } & 1.6300 & 1.6600 & 0.6173& 0.6024 \\\hline \text { 6 Months Forward } & 1.6600 & 1.7200 & 0.6024 & 0.5814 \\\hline \text { 12 Months Forward } & 1.7200 & 1.8000 & 0.5814 & 0.5556 \\\hline\end{array}$

• A)Go short 12 six-month forward contracts; pay $1,630,000.
• B)Go short 16 six-month forward contracts; pay $1,630,000.
• C)Go long 16 six-month forward contracts; raise $1,660,000.
• D)Go long 12 six-month forward contracts; receive $1,660,000.

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Definitions:

Annual Rent

The total amount of money paid for the use of property or equipment for a year.

Adjusting Entries

Documentation made at the culmination of an accounting period, aiming to allocate revenues and expenses to the correct timeframe of their occurrence.

Fiscal Year

A one-year period used for financial reporting and budgeting, which may not align with the calendar year.

Net Income

Represents the total profit of a company after all expenses and taxes have been subtracted from total revenue.